Neostem Inc (NASDAQ:NBS)

CAPS Rating: 3 out of 5

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Member Avatar bloodrootfc (37.33) Submitted: 12/6/2014 7:55:54 PM : Outperform Start Price: $3.79 NBS Score: -11.39

Probable deal with Baxter International. Short covering. Unexpected positives from PCT business.

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Member Avatar zzlangerhans (99.85) Submitted: 12/6/2014 4:17:13 PM : Outperform Start Price: $3.81 NBS Score: -11.98

I'm sure many people interested in stocks wonder why I would obsess over a shady microcap stem cell biotech like NeoStem. In turn, I wonder why so much stock commentary is devoted to behemoths like Apple, Tesla, and Facebook. Don't retail traders realize that their chance of getting an edge on those companies is nil, no matter how much research and due diligence they conduct? Think about how many hedge funds and institutions are watching every tick those stocks make, with access to information that dwarfs what is available to retail traders. They are perfect examples of efficient market theory, and any attempt to trade them is no better than gambling.

NeoStem, on the other hand, demonstrated last month why the market isn't very efficient with poorly followed microcap stocks. On November 10, the company took the unusual step of pre-announcing the presentation of topline data from their PreSERVE placebo-controlled trial of AMR001 stem cells to treat heart muscle damage after myocardial infarction. This gave traders a whole week to position themselves ahead of data. It's unusual for this type of biopharma company to provide the exact time of topline data in advance, because the placebo-controlled trials usually fail and the companies don't want short-sellers and options traders to rush into short positions and depress the share price before they have a chance to spin the negative data in the PR. In this case, the share price actually roared upward after the preannouncement and I couldn't resist taking a relatively small thousand dollar position in 5 strike November puts just before topline data.

As I expected, the topline data announced on November 17 showed that NeoStem had missed the primary endpoint of gated SPECT MPI score, a radiologic measurement of myocardial perfusion. But strangely, the stock was only down 30% despite the fact that AMR001 was NeoStem's lead compound and they were low on cash. The share price should have been down at least 60%, but thanks to the limited plunge my puts were out of the money. Unsurprisingly, NeoStem's PR claimed that the trial was a success despite missing the primary endpoint. Shady microcap biotechs rarely admit defeat, since they're focused on their stock price for purposes of dilution, and will take any opportunity to mitigate the effect of a negative catalyst. Usually, however, the market isn't so susceptible to the spin. In this case NeoStem was claiming some nonsense about a mortality benefit in a post hoc subset analysis which I knew meant nothing. I hadn't written my underperform pitch on NeoStem yet despite opening my pick the prior week, so I went over to clinicaltrials.gov and copy/pasted the failed primary endpoint into my pitch, which can be seen here:

http://caps.fool.com/Pitch/NBS/7266188/when-i-saw-that-neostem-stock-.aspx

My next move was to read Feuerstein's article, which pulled no punches in pointing out that PreSERVE had failed.

http://www.thestreet.com/story/12957358/1/neostems-stem-cell-therapy-fails-mid-stage-heart-attack-study.html

What stopped me in my tracks, however, was his statement that "The study's other co-primary efficacy endpoint was a measurement of adverse cardiac "MACE" events". But I had just reviewed the primary efficacy endpoint of the trial on clinicaltrials.gov and copy/pasted it into my pitch, and there was nothing there about MACE. I went back to clinicaltrials.gov, looked again, and there it was - primary endpoint of MACE ahead of myocardial perfusion. If I hadn't just copy/pasted that line I would have blamed myself for cutting the biggest brain fart of all time, but in this case the only explanation was that someone had changed the primary endpoint of the trial on clinicaltrials.gov in hour after I looked at it to write my pitch. I was shocked and disgusted. I had always seen clinicaltrials.gov as an objective, government-run resource that the scammy companies couldn't alter or spin, but apparently I had been wrong. It was possible to change the primary endpoints of a clincial trial after the trial had been completed and unblinded, and the topline data announced.

Naturally, I made a big stink about this on Twitter and documented the unfolding saga in comments on my CAPS underperform call. I won't rehash everything here, but will direct the reader to those comments. The most significant development from this is that someone pointed out that clinicaltrials.gov contains an archive link in which all changes to the trial entry can be seen. Using that function, the changes that were made to the PreSERVE trial can be seen here:

http://clinicaltrials.gov/archive/NCT01495364/2014_11_17/changes

From that page it is obvious that the primary endpoints as delineated in line 12 have been substantially altered, so that MACE and myocardial perfusion are both listed as primary endpoints, in that order. It is also clear that the language of line 12 has been altered to obfuscate the independence of safety and efficacy of primary endpoints. The original language makes it clear that adverse events of the AMR001 infusion are a safety endpoint, while myocardial perfusion is the only efficacy endpoint. The altered version removes all mention of safety and efficacy. The clear intention of NeoStem to obfuscate the distinction between safety and efficacy endpoints can be further seen in line 4, the description of the trial. NeoStem changed the word "efficacy" in the second sentence to "this" for no other reason than to blur the distinction between safety and efficacy endpoints.

I have relatively few Twitter followers, but my observations on NeoStem were picked up and elaborated on by some more notable members of the biotech community. This may have contributed to further decay in NeoStem's share price during the week of OpEx which allowed me to close out my puts for a modest profit the day before OpEx. On the day of OpEx, Seeking Alpha published this article, which cited my observations and raised some other concerns, and drove NeoStem's share price down another 20% to a low of 3.56.

http://seekingalpha.com/article/2701785-neostem-changing-the-goalposts-midgame-and-a-potentially-biased-analyst

I had nothing to do with this article, had no advance knowledge of it, and didn't benefit from it at all since I'd already closed my position the day before. I missed out on thousands in potential gains, but I have mixed feelings about not profiting from the article. I think there's a clear line between commentary and manipulation, and publishing a one-sided negative article on an influential website on the day of OpEx is clearly manipulation. I want make money outsmarting the market, not manipulating it. On the other hand, the article was countering the spin and manipulation that NeoStem and their supporters were using to move the share price in the other direction. Ultimately, the only thing that is clear is that the retail investor base for NeoStem is pretty easily moved in either direction.

I haven't forgotten that this is an outperform pitch. I'm going to pick up the NeoStem story and explain where I think the company goes from here in the first comment, so that people familiar with the backstory can go straight to the new material.

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Member Avatar ravngm (< 20) Submitted: 10/23/2014 2:06:09 PM : Outperform Start Price: $5.32 NBS Score: -42.72

Upcoming catalyst. Strong pipeline.

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Member Avatar TerryHoodSr (65.20) Submitted: 4/15/2014 9:52:51 AM : Outperform Start Price: $6.86 NBS Score: -63.82

trade buy@ 6.8 TP 8

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Member Avatar TerryFool (55.34) Submitted: 4/4/2014 3:50:58 PM : Outperform Start Price: $6.97 NBS Score: -62.76

BUY PULLBACK

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Member Avatar lewis33 (< 20) Submitted: 1/31/2014 2:10:48 PM : Outperform Start Price: $7.32 NBS Score: -69.81

stem cell research is wave of the future. the future is now!

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Member Avatar TempoAllegro (30.25) Submitted: 1/30/2014 10:08:21 AM : Outperform Start Price: $7.03 NBS Score: -69.58

NBS has a novel therapy using stem cells that may become the standard of the cardio-health industry. This is a small company with lots of potential and multiple irons in the fire.

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Member Avatar tjpliss (< 20) Submitted: 12/13/2013 7:43:38 AM : Outperform Start Price: $6.06 NBS Score: -60.58

i think in time

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Member Avatar KattyKay (87.71) Submitted: 11/17/2013 11:25:12 AM : Outperform Start Price: $6.34 NBS Score: -61.83

NBS has 4 business units- each of which could easily be a company in its own right. They are at the forefront of a new paradigm in treating certain diseases. The current money-maker is Progenitor Cell Therapy (PCT) which is the manufacturing unit using proprietary technology to manufacture stem cells for other pharma companies. This allows NBS to make money while developing their own stem cell therapies. And perfect their manufacturing techniques. The best known unit is Amorcyte due to phase 2 clinical trial of AMR-001 (autologous marrow stem cells f) for acute myocardial infarction. The Athelos unit is developing the lesser know human regulatory T cell therapy approach (patented technology) to immune-mediated diseases (ie, asthma or type 1 diabetes). This Treg technology has been licensed out to other companies, earning money for the development of this novel therapeutic approach. The VSEL unit is developing pluripotent stem cells (very small embryonic-like stem cells) for regenerative therapies (e.g., wounds or bone regeneration). As this is early research, VSEL is partnering with universities and government organizations to learn about these VSELs. Finally, tthrough the relationships with pharma companies developed by PCT or Athelos, NBS could potentially negotiate a favorable development agreement with a larger company to fund clinical development through phase 3 and approval. This approach has worked for other small biotech companies in recent years. As a forerunner in this new field, NBS could bring one of the first 'stem cell' therapies to market in the next 3 to 5 years.

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Member Avatar Raultest1 (< 20) Submitted: 6/21/2013 8:03:58 PM : Outperform Start Price: $5.27 NBS Score: -67.82

I think it's a well managed company and should out perform the market.

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Member Avatar topsav1 (< 20) Submitted: 6/18/2013 2:41:55 PM : Outperform Start Price: $5.25 NBS Score: -60.87

New cardiac technologies to take off

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Member Avatar topsav (< 20) Submitted: 5/15/2013 12:20:40 PM : Outperform Start Price: $5.95 NBS Score: -68.16

upcoming technologies

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Member Avatar neoexmnist (< 20) Submitted: 12/18/2012 7:33:14 AM : Outperform Start Price: $6.50 NBS Score: -92.03

NeoStem is projected to have their first treatment commercialized in 2017.

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Member Avatar Brilliantdummy (31.19) Submitted: 10/29/2012 12:22:31 PM : Outperform Start Price: $6.60 NBS Score: -94.98

Allah peanut butter sandwiches;)~

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Member Avatar adzturbot (35.31) Submitted: 10/23/2012 10:32:08 PM : Outperform Start Price: $7.25 NBS Score: -99.44

rock solid on the current market pullback. Watch this fly once it gets the chance

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Member Avatar Pharmagirl (< 20) Submitted: 9/11/2012 11:21:26 PM : Outperform Start Price: $6.70 NBS Score: -93.18

Most of the medical profession, maybe not Wall Street, recognizes we've entered a new age in cancer and cardiac care. Thanks to stem cell and genetics research, we're moving from cutting to perhaps curing, or in the very least, offering patients less invasive procedures that may very well help extend their lives.

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Member Avatar ThinkBullish (< 20) Submitted: 7/30/2012 11:40:31 AM : Outperform Start Price: $6.85 NBS Score: -98.42

Highly undervalued considering the amount of potential it has. I'm not religious but you can't bet against a company backed by the Pope either :)

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Member Avatar GirlsUnder30 (85.34) Submitted: 7/28/2012 10:46:20 AM : Outperform Start Price: $7.09 NBS Score: -101.67

I'm in NY and I know this company. Expect some future stock dilution or debt issues if it stays independent but I expect it will be acquired at some point.

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Member Avatar SamsaricSufferer (< 20) Submitted: 7/4/2012 8:14:51 PM : Outperform Start Price: $5.75 NBS Score: -92.77

Stem cell expertise.

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Member Avatar valueseeker1 (60.20) Submitted: 1/20/2012 9:43:34 AM : Outperform Start Price: $7.40 NBS Score: -112.29

This is a high risk / high reward extreme speculation, on my part.
This is based on current momentum.

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